Brazilian Perspectives on Development of Clean Energy

Abstract

The Brazilian energy system can be considered environmentally friendly due to the significant share of renewable energy sources. For the next decades, there are some concerns that renewable energy sources may lose market share if we trust official plans and the maintenance of unfair barriers created by environmental bodies on further medium and large hydroelectricity additions. Nevertheless, on one side, the highly anticipated progress in the use of bioenergy, small hydropower plants (SHP) and wind energy sources and on the other side, future commitments of the country in controlling its greenhouse gas (GHG) emissions may demonstrate that in the near future, new and renewable energy sources should be able to guarantee that fossil fuel-based energy sources will not show the relative growth identified in the official planning programme (EPE 2008) extensively discussed in this chapter.

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1 Introduction

Concern with clean energy production and use is becoming increasingly significant in Brazil . The country’s primary energy supply profile qualifies as one of the cleanest in the world since renewable energy sources (or, renewables) represent more than 40 % of the total primary energy sources. Renewable energy sources, mainly hydroelectricity, ethanol, firewood, biodiesel, and charcoal, are in use.

Energy efficiency has been understood as another important alternative for reducing energy cost in the country since as early as 1985, when the official electricity conservation programme—PROCEL—was implemented in the country. Another sign of the country’s concern with clean energy sources is the significant participation of Brazil in the Clean Development Mechanism (CDM) in the initial years .

For the future, the energy system foresees large expansion in ethanol , biodiesel , bioelectricity generation , small hydropower , and wind electricity , as well energy efficiency improvement . In addition, Brazil has sufficient natural resources (rivers, land, wind, and solar energy) to be a major user and even an exporter of these clean energy sources. In Brazil, the government, the population, and the entrepreneurs are aware that clean energy is an important issue to consider since the world demand for such kinds of energy will continuously increase.

Brazil’s energy profile is composed of a significant share of renewable sources . This has been the case for a long time, triggered by the significant support of financing decisions made by multilateral organisations in the early 1960s, and due to the availability of potential hydro resources relatively close to the densely populated area of the southeast region of the country (CANAMBRA 1959; Gomes 2002). Biomass , as another modern renewable energy source , was introduced in the 1920s as a liquid fuel feedstock when some cars were adapted for the use of ethanol. Nevertheless, the real push started in 1975, through the establishment of PROALCOOL ¹ (the National Alcohol Program) driven by the huge increase in oil prices between 1973 and 1975 and the very limited availability of national sources of oil at that time.

The urgent necessity to limit the outflow of hard currency caused by large volumes of oil importation was an excellent motivation to build appropriate legislation opening the liquid fuel market to ethanol, as well as establishing very favourable financing conditions to new sugar mills interested in its production (Moreira and Goldemberg 1999).

Only after the Rio de Janeiro Summit in 1992² were renewable energy sources and energy efficiency presented by the government and large entrepreneur groups as energy alternatives that could help the country’s economy. Considering the long tradition of the country in dealing with some of these sources, the climate change appeal gained momentum, especially taking into account that it could be an extra source of revenue for the country.

Interest in fostering the construction of small hydros, solar collectors, biomass-based thermoelectric plants and installing photovoltaic (PV) cells, which were already considered in the early 1980s, triggered research and academic work. Nevertheless, significant investment in most of these areas started only after 1995 when significant changes in energy legislation created the figure of the independent power producers (IPP)³. Before that date, only concessionaires had the right to produce and sell electricity to final consumers and these big companies were essentially interested in large units that were unfeasible for renewable energy sources, except hydroelectricity .

With the possibility of selling electricity, many medium-size companies demonstrated interest and once again the government created an attractive programme, the PROINFA,⁴ which provides significant financial support to new investors. Regarding wind energy, only in this new century has wind energy started to find ways to become competitive with the subsidised tariffs set by the government and is now taking off (Feitosa 2005).

Essentially, the only renewable source that has been promoted based exclusively in social and environmental sustainability is biodiesel. This programme, launched officially in 2005⁵ by means of government action, through the creation of captive consumer markets and the provision of financial support to producers, gained relative success in a short time. Starting with a compulsory blend of 2 % in all diesel sold in the country, 5 % blending of biodiesel became compulsory in 2010.

The CDM was also a useful driver for motivating private interest in renewables, in particular, bioelectricity generation in the sugar mills. From the very beginning, Brazil was one of the largest players in the CDM market. By June 2009, from a total of 1665 projects registered, Brazil had the third largest share at 9.5 %, after China and India. Regarding the expected average annual certified emission reduction (CER) participation, Brazil was also the third, but with a share of 6.7 %. This last figure can be explained by unfair competition from countries like China and India, which have a much higher electricity grid emissions factor than Brazil, since the revenue from carbon credits, as defined by the UNFCCC, is directly correlated to the ‘dirty intensity’ of the electricity supply system.

For the future, in official planning, a large increase in the share of new and renewable energy sources in the energy profile is being considered (EPE 2008). Hydroelectricity from medium and large dams will increase in absolute value but not in relative participation. There is a plan to increase the relative share of fossil fuel-based thermoelectricity.

On the other hand, at the national level, legislation (Law 12.014/09) claiming to reduce between 36.1 and 38.9 % of greenhouse gas (GHG) emissions by the year 2020 was issued on December 28, 2009 (InfoJus 2010). In the past 15 years, Brazil has emitted 2.2 billion t of GHG. From 1990 to 2005, emissions rose by 62 %. Deforestation accounts for 57.5 % of total emissions, followed by agriculture (22.1 %) and energy (16.4 %). The Brazilian government knows it will have to impose emission limits on the productive sector. The challenge is to do so without affecting the country’s annual GDP growth rate of around 6 %.

2 The Brazilian Energy System

It is worth examining the historical participation of the primary energy sources to notice the relevance of renewable energy sources in the past decade.

Figure 7.1 shows the evolution of the major primary sources. It is possible to note that oil and oil derivatives are the leading sources and their use has increased more than four times in the period between 1970 and 2008. As expected from the economic progress of the country, wood fuel and charcoal have declined even in absolute value, mainly due to the reduction in traditional biomass used for cooking and heating. Charcoal that is mostly used by the iron and steel sector has also lost market share mainly due to the difficult economic competition with high-quality coal, which is imported (BEN 2009). Hydroelectricity shows an increase of more than eight times in the same period. The relatively small amount of hydroelectricity in Fig. 7.1 is due to the strange assumption that 1 kWh_e is taken as 3.6 MJ, when accounting for hydro sources. It is also worth noting that ethanol, used as liquid fuel for transportation, and sugarcane bagasse, used as a source of heat and electricity either in sugar mills or for export to the grid, have substantially increased their contribution in the past few years and today are together the second most important source of primary energy, surpassing hydroelectricity. Finally, natural gas, which for a long time occupied a miniscule share of the energy market, has been gaining relevance since the end of the last century. Regarding the remarkable fact that sugarcane bagasse and ethanol are ahead of hydroelectricity nowadays, it is worth commenting that this occurred once before between 1981 and 1985 (BEN 2009), driven by the significant boom in neat ethanol car sales in that period. After that, due to the shock caused to consumers by a shortage in ethanol supply (Moreira and Goldemberg 1999), this fuel lost its prestige and its presence in the market was only guaranteed by the legislation that requires a minimum amount of ethanol (20–25 % depending on the year) blended in all gasoline sold in the country. This trend was reversed by 2003 with the launch of the flexfuel car (a car that can use gasoline or ethanol in almost any proportion⁶), and was further driven by the high price of oil in 2007 and 2008.

Fig. 7.1

Cumulative primary energy consumed—Brazil 1970–2008. (Source: BEN 2009)

Figure 7.2 shows that currently, a little more than 110 Mtoe (Million tonnes of oil equivalent) of primary energy is renewable, while the remaining 120 Mtoe is from fossils. It is also possible to examine the evolution of the renewable energy share over time and, unfortunately, it is losing space to fossil energy . Even considering the significant increase in the use of new and renewable sources (sugarcane bagasse, ethanol, biodiesel, and small hydro), it is not enough to offset the reduction on large hydro plant construction.

Fig. 7.2

Primary energy supply —Brazil 2007. (Source: BEN 2009)

On the demand side, Fig. 7.3 shows a decline in the share of energy used by the industrial sector, an increase in the residential sector and an almost stable share in the commercial sector. The relative growth of energy use in the agricultural sector is explained by the significant increase in agricultural production in the period 1970–2008.

Fig. 7.3

Share of end-use sector participation in energy consumption Brazil 1970–2008. (Source: BEN 2009)

Figure 7.4 shows two useful energy indicators for the country. One is the amount of energy used per inhabitant, and the other is the amount of energy used to generate one dollar of revenue in the country’s economy. The figure uses the real gross national product (GNP) and concludes that the country’s energy efficiency has been quite stable since 1980, which is a poor result when compared with other large developing countries, such as China and India (IEA 2009a).

Fig. 7.4

Energy intensity —Brazil 1970–2008. (Source: BEN 2009)

3 The Ethanol Programme

Fuel ethanol has been replacing gasoline since 1975 . From 1975 to 1980 it was only blended in gasoline. Starting in 1980 and motivated by the rapid increase in ethanol availability due to the success of the PROALCOOL programme driven by private entrepreneurs but with very attractive financing mechanisms from the federal government, the neat ethanol car started to be commercialised. These cars are powered by hydrous ethanol (93 % ethanol and 7 % water) as opposed to the ones that use gasohol, which is gasoline blended with neat ethanol (99.7 % ethanol) (Moreira and Goldemberg 2003).

Ethanol production grew very rapidly in the first 10 years of the programme (1976–1986) (shown in Fig. 7.5), followed by a decline between 1999 and 2003 and a resurgence of growth from 2003 to 2008. This peculiar behaviour can be explained by the following major drivers (Proalcool 2010):

Fig. 7.5

Annual consumption of liquid fuels—Brazil 1970–2008. (Source: BEN 2009)

1976–1986

For the first 4 years, ethanol was only used as a blend in gasoline. In 1980 with the introduction of neat ethanol cars in the market, national energy legislation required that all service stations have at least one dedicated ethanol pump. With the low price of ethanol, the availability of supply, compulsory consumption through the blend in gasoline, and voluntary consumption by neat ethanol cars the demand rose very quickly. It is worth noting that neat ethanol cars represented 95 % of all new cars manufactured in 1985. A strong institutional infrastructure was created, price mechanisms were designed to keep ethanol prices below those of gasoline, and tax differentiation between both fuels drove up ethanol production. With favourable prices, demand also increased due to the production and sales of neat ethanol cars.

1986–1995

This was the phase of stagnation. From 1985 oil prices declined significantly to the level of US$ 12–20/bbl. In Brazil, this effect was noticed only in 1988 when there was a shortage of public money to subsidise programmes for alternative energies, driving down the volume of investments in further ethanol expansion. The low price of the fossil fuel also reduced availability of private investment in the ethanol sector, limiting production expansion since 1986. On the demand side, sales of neat ethanol cars continued. Nevertheless, the strong demand was not fulfilled by the installed capacity and a significant shortage of ethanol for voluntary consumers showed up. The problem was partially mitigated through imports of ethanol and methanol, and the replacement of the compulsory 20 % of ethanol blended in gasoline. As a result, ethanol producers decided to dedicate a significant share of sugarcane to sugar production, while the ethanol fuel market was supplemented by imported ethanol.

During these two phases it was necessary to subsidise ethanol since its price was controlled by the government and set as a fraction of the gasoline price. The total accumulated amount of subsidy was high, reaching more than US$ 30 billion by 1998 (Moreira 2008). Fortunately, this accumulated amount has started to decline in the past 10 years, after the government price control was removed (see next paragraph).

1995–2000

This was the phase of redefinition. The government removed price controls on fuels, letting ethanol rely on market competition to survive. During this time neat ethanol car sales dropped to 1 % of the total annual production. It is interesting to note that in this period sugarcane production continued to grow, essentially due to the expansion of sugar for export (Fig. 7.6).

Fig. 7.6

Ethanol and sugar production—Brazil 1970–2008. (Source: BEN 2009)

2001–Today

This is the present phase where significant expansion of sugarcane production occurred and fuel ethanol production surpassed gasoline consumption in 2009. New planting areas occurred in regions of the state of São Paulo and in neighbouring states like Minas Gerais, Mato Grosso do Sul, and Goias, which were modest sugarcane producers. Most of the motivation to increase ethanol production was the introduction of flexfuel cars (Poppe 2004). Simultaneously, the government understood the significant electricity potential associated with the use of an ethanol by-product—bagasse—and set policies in favour of its promotion. The promotion is being carried out not only through PROINFA , but also through public bidding especially designed for biomass-based electricity plants using the installed electric grid.

3.1 Major Outcomes from the Success of the Ethanol Programme

During the first and second oil shocks, (1973–1974 and 1977–1979) due to the strong dependence of the Brazilian energy sector on imported oil, a significant amount of hard currency was spent on importation. Figure 7.7 shows the impact of ethanol on the Brazilian trade balance. In some years, more than 50 % of the total hard currency obtained from international exports was spent on importing oil. With the production of ethanol, gasoline consumption declined due to the substitution effect.

Fig. 7.7

Impact of ethanol in the Brazilian trade due internal use and exportation. (Source: Moreira 2010)

3.2 Currency Savings by Passengers’ Car Drivers

The presence of an alternative to gasoline increases competition and consequently reduces prices. Figure 7.8 shows the price of gasoline and diesel relative to imported oil. As can be seen, diesel has a lower price than gasoline. This is a long-term trend set by the government to control the prices of goods. It is possible to note also that the gasoline to imported oil ratio shows an almost horizontal trend, that is, the ratio is essentially constant over the 35-year period. In contrast, diesel prices increased with respect to imported oil. From Fig. 7.8 we note that gasoline prices decreased by 0.5 %, while that of diesel increased by 10 %.

Fig. 7.8

Price ratio gasoline/imported oil and diesel/imported oil—Brazil 1973–2008. (Source: Based on data from BEN 2009)

Figure 7.9 allow us to see even better the effect of competition in the gasoline market. The oil company, in order to preserve its revenue and minimise market share losses, increased gain margins on diesel while reducing those on gasoline⁷. The conclusion is that alternative sources of energy can bring another advantage—a reduction in the cost of energy in case alternatives are available to replace the major fuels used in the transportation sector.

Fig. 7.9

Relative price to final consumer of gasoline/diesel , amount of ethanol production and amount of 2008 US$ saved by gasoline consumers —Brazil 1973–2008. (Source: Based on data from BEN 2009)

3.3 Liquid Biofuel and Reduction in GHG Emissions

The production and use of biofuels have been under criticism in the past 2 years due to some new sustainability indicators . One of them is the contribution of biofuels to GHG emissions due to direct land use change (LUC) and indirect land use change (ILUC) . Another source of concern is related to the significant release of N₂O into the atmosphere due to the use of N-fertilisers when planting biofuel feedstock. Some authors have argued that not all biofuels are necessarily green (Crutzen et al. 2008; Fargione et al. 2008; Searchinger et al. 2008). However, all these evaluations conclude that sugarcane ethanol has the best capacity to mitigate climate change if properly managed (EPA 2010; Gibbs et al. 2008).

Ethanol from sugarcane produced in Brazil is able to reduce CO_2eq emission by 61 % considering LUC and ILUC effects (US EPA 2010). Pacca and Moreira (2009) tried to quantify the overall impact of the PROALCOOL programme from its launch in 1975 up to 2007. Figure 7.10 shows that in the initial years of the programme, the overall effect was negative, increasing GHG emissions, mainly due to carbon from above and belowground biomass that was lost to the atmosphere when converting earlier vegetation in sugarcane crops. It took 17 years for CO_2eq emissions from gasoline, due to its displacement by ethanol, to offset all the initial GHG emissions. Nevertheless, after 32 years it is possible to see that 125 tCO_2eq/ha has been avoided. The relatively long offset time was a consequence of the very poor initial efficiency of ethanol production.

Fig. 7.10

Accumulated amount of GHG emissions avoided by the use of fuel ethanol as a replacement for gasoline in Brazil: 1975–2008. (Source: Pacca and Moreira 2009)

Figure 7.11, shows how much GHG mitigation could be obtained from the PROALCOOL programme, since the provided surplus electricity generation using present available technology (steam turbines) and carbon capture and storage (CCS) on CO₂ from fermentation were being performed since 1975. An accumulated abatement of CO_2eq of 400 t/ha would be achieved in 2007. Note that for Fig. 7.11, the historical low ethanol efficiency has been maintained.

Fig. 7.11

Accumulated amount of GHG emissions avoided by the use of fuel ethanol as a replacement for gasoline in Brazil if electricity surplus generation and CCS had been in effect from the beginning of the programme (1975–2008). (Source: Pacca and Moreira 2009)

Pacca and Moreira show that for the next 32 years, based on the available technologies, with the present and increasing yield of ethanol and an annual expansion of 4.3 % in the planted area for sugarcane, the practice would always be environmentally sound, accumulating CO_2eq abatement of 820 t/ha (until the year 2039).

4 Biodiesel

The use of biodiesel is relatively recent in Brazil. The programme was officially launched in 2005 and since then production has been increasing at a monthly rate of 13.5 % (Fig. 7.12). This huge increase, much bigger than the one observed for ethanol at the beginning of PROALCOOL, is explained by the immediate availability of vegetable oil crops and the shift of its products from the food to the fuel market.

Fig. 7.12

Monthly biodiesel production—Brazil 2005–2009. (Source: MAPA 2009)

Most of the feedstock for biodiesel comes from soya, which has been extensively planted in the country. Figure 7.13 shows the increase in planted area for soybeans in the past 31 years. It is also possible to note the significant increase in yield, because while the planted area increased by a factor of three, production increased by a factor of six in this period.

Fig. 7.13

Soybeans production and planted area—Brazil 1976–2009. (Source: MAPA 2009)

The government’s initiative was a very important driver for the implementation of this new renewable fuel market. Legislation issued in 2005 established a compulsory and cap voluntary index for the amount of biodiesel blended in diesel. Figure 7.14 shows the established values, which reached 5 % compulsory level by 2010. Also shown is the real achievement of the biodiesel market.

Fig. 7.14

Biodiesel legislation. (Source: Prepared by author)

One major difference between the ethanol and biodiesel programmes was the strong social content of the latter. One of the targets of the biodiesel programme was to endorse familiar agriculture participation. For this purpose, Petrobrás invested in the production of biodiesel from castor oil, which can be planted in the northeast region of the country where a significant share of the farmers are very poor. In parallel with that, the federal government set lower taxes on biodiesel produced partially from vegetable oil crops grown by familiar agriculture.

The overall mechanism used by the government to fulfil the legislation was to acquire biodiesel from the market through public biddings. Figure 7.15 shows that a total of 2.6 Mm³ of biodiesel was acquired by Petrobrás from November 2005 to February 2009, that is on average, 67 Ml/month. Also, it is interesting to note that the major contribution came from center-west and the southeast and south regions where soya is largely produced. The north and northeast regions, where biodiesel from palm oil and castor oil have some contribution, had smaller participation. This means that the fraction of biodiesel feedstock produced by the rural poor is a small component of the total production (probably less than 20 %). Figure 7.16 shows the average price paid by Petrobrás which ranges from 1.75 to 2.70 R$/l. Diesel fuel is sold by Petrobrás at 1.10 R$/l, which demonstrates that biodiesel, once tax, transportation and handling costs are included, should be sold at at least double the price of diesel.

Fig. 7.15

Volume of biodesel acquired in each of the public biddings in the period 2005–2009 = Brazil. (Source: MAPA 2009)

Fig. 7.16

Biodiesel average price (R$/l) as a function of date of bidding—Brazil 2005–2009. (Source: Based on data in MAPA 2009)

Regarding climate change mitigation, there is not enough consensus about its real impact on vegetable oil feedstock. Energy and CO₂ balances for the production of biodiesel usually show a benign environmental impact, when direct and indirect land use change (LUC and ILUC) emissions are excluded (Table 7.1).

Table 7.1 Biodiesel from soya energy balance . (Source: NM0253 presented to UNFCCC-EB by MGM International in 2008)

This table shows the relation of energy content (MJ) of vegetable oil (VO) and the amount of fossil energy (MJ) used in VO production. The value considered is 3.17 less one standard deviation, which is 3.02.

Nevertheless, when LUC and ILUC impacts are added the situation is not very clear. USEPA has evaluated the complete GHG emission for biodiesel from soya and arrived at an initial conclusion that, at least for the US, total GHG emissions exceed fossil diesel emissions by 4 % (Fig. 7.17). This issue is still controversial. Nevertheless, it is important to note that many technological improvements can still be introduced in the first generation of biofuels, which can change ILUC contribution in the future.

Fig. 7.17

USA renewal fuel standard (RFS 2). (Source: U.S.EPA; Laughlin 2009)

The biodiesel programme is moving forward in Brazil. Since January 2010, a blending of 5 % has become compulsory, while the voluntary cap is 20 %. The total installed capacity in 2009 was 3.9 Mm³ (Table 7.2) while demand was estimated as 1.3 Mm³ for a 3 % blend (B3). It is possible to see that the total installed capacity is enough to fulfil the demand for the 5 % blend in 2010 (B5).

Table 7.2 Installed capacity of biodiesel plants, and biodiesel demand by region Brazil 2009 (m³/yr). (Source: MAPA 2009)

The taxes, which added a value of US$ 120/m³ in 2004, were reduced as shown in Table 7.3 (biodiesel). Nevertheless, due to the recognition that it is impossible to fulfil demand only by relying on familiar agriculture, the present legislation states that such reduction applies to all biodiesel, provided the shares of vegetable oil from familiar agriculture are fulfilled according to the values shown in the lower part of Table 7.3.

Table 7.3 Federal taxes on biodiesel and diesel used for fuel and applicability conditions. (Source: Federal Decrees No 5297/04 and 5457/05; Federal Decree Ministry of Agrarian Development No. 1 from 7/5/2005)

5 Charcoal

Charcoal is another potential renewable fuel prepared from wood and largely used in Brazil. Figure 7.18 shows the historical consumption of charcoal. It is possible to see that most of it is for industrial use. Iron and steel and iron alloy manufacturers are the major users (Fig. 7.19).

Fig. 7.18

Charcoal consumption by end-sectors—Brazil 1970–2008. (Source: BEN 2009)

Fig. 7.19

Charcoal use in industries 1970–2008—Brazil. (Source: BEN 2009)

Charcoal, as produced in Brazil, unfortunately cannot be considered fully renewable and sustainable. As shown in Fig. 7.20 only a share of the charcoal is produced from planted forests. The use of wood from native vegetation is legally allowed either due to agricultural frontier expansion or through partial deforestation of new occupied areas. The use of wood though illegal removal from native forests and from the cerrado (a kind of land with vegetation similar to savannahs) is not allowed, but the regulation enforcement is not perfect. Due to this, some of the feedstock used for charcoal is obtained from native vegetation. An amount of 10 million MDC (1 MDC is the amount of coal contained in 1 m³ and 10 million MDC is equal to 2.5 Mt of charcoal) requires the use of 8.3 million t of wood (6 Mt of dry wood). Such an amount of wood, if collected from native forests (wood density of 250 t/ha) may require deforestation over an area of 33,000 ha. Thus, an area as large as 160,000 ha has to be cleared annually. Precise data on this share is not available, but assuming that agricultural area expands by 0.1 % per year, and half of the new areas are tropical forests and half cerrados, around 7.5 Mt of wood from tropical forest and 1.5 Mt of wood from the cerrado would be available as a source of charcoal. This amount is half the maximum demand for feedstock from planted forests (Fig. 7.20). The conclusion is that new agricultural areas must be expanding, probably at annual rates of at least 0.2 % a year (Ferreira Filho and Felipe 2007).

Fig. 7.20

Charcoal production from different biomass feedstock —1980–2005—Brazil. (Source: Uhlig et al. 2008)

Consequently, the future growth of the charcoal industry depends on the increasing use of planted forests, which are growing very modestly, as shown in Fig. 7.21.

Fig. 7.21

Annual planted forest area for charcoal production—Brazil 1984–2004. (Source: Uhlig et al. 2008)

6 Hydroelectricity

Figure 7.22a shows the total electricity generated by different sources of energy, while Fig. 7.22b shows hydroelectricity generated in the country and the net amount of electricity imported. It is possible to see that hydroelectricity generation has increased at a rate of 6.04 % per year, which is below the total increase in electricity generation in the country (6.38 % per year), while imports have increased after 1985. Consequently, the share of hydroelectricity in the national supply of electricity has declined in favour of fossil fuel-based generation, even considering the increasing participation of biomass-based electricity (wood fuel, sugarcane bagasse and black liquor), shown in Fig. 7.23.

Fig. 7.22

a Electricity generation portfolio by energy sources—Brazil 1970–2008 b Hydroelectricity generation—Brazil 1970–2008. (Source: BEN 2009)

Fig. 7.23

Relative participation of energy sources in electricity. (Source: BEN 2009)

Significant environmental and social barriers have been limiting the expansion of hydroelectricity in the past 10 years (Sternberg 2008). The potential is still quite significant and 41,100 MW of new installed capacity is already under construction and 11,780MW are forecast to be in operation up to 2017 (EPE 2008). This is significant since the installed hydro capacity was 81,669 MW in 2009, when total installed power was 107,188 MW (see the relative share of electricity generated in Fig. 7.24). Nevertheless, thermo-capacity is also expected to increase from 17,307 MW in 2009 to 30,000 MW by 2017 (see the relative share of electricity generated in Fig. 7.24). Total biomass-based electricity is assumed to increase from 1637 MW in 2009 to 4170 MW by 2017.

Fig. 7.24

Relative participation of energy sources in electricity generation—Brazil 2008–2017. (Source: EPE 2008)

Figure 7.24 shows the expected growth in electricity capacity addition from 2008 to 2017. It is possible to calculate the hydro share, based on installed capacity, from Fig. 7.24. The conclusion is that hydro share will be reduced from 79.31 to 70.98 %, while fuel oil-based units will increase their share from 1.34 to 5.75 % and coal from 1.39 to 2.05 %. Some new and renewables are expected to increase from 3.87 to 5.00 % (small hydro), 0.96 to 2.70 % (biomass) and 0.27 to 0.92 % (wind energy). Nuclear-based capacity will remain practically stable (2 %). We cannot make a direct correlation between the installed capacity and electricity generation; nevertheless, the significant reduction in hydro share will increase the CO₂ intensity of the electric grid.

7 Small Hydropower Plants (SHPs)

SHPs are defined as hydroelectric power plants with an installed capacity between 1 and 30 MW, with a total water reservoir equal to or less than 3 km² (Resolution 394/1998 item 2). As shown in Table 7.4, the total installed capacity was 2235 MW by 2007.

Table 7.4 SHP, biomass and wind installed capacity—Brazil-2007. (Source: ONS e CMSE 2007)

The main advantages of SHPs are: (1) Construction and operation do not require bidding for concessions to explore natural resources (waterfalls); (2) Freedom to commercialise electricity with consumers with demand equal to or above 500 kW; (3) Qualification for a discount of 50 % in welling tariffs; in some circumstances it is 100 %; (4) No tax collection for the use of natural resources; and (5) Free access to the integrated network system, provided that the technical specifications are met.

The major risk is that SHPs are not controlled by the National System Operator (NSO) and consequently are exposed to rainfall instability, which may require electricity acquisition in the spot market; nevertheless, this risk can be minimised.

Electricity tariff is freely negotiated between SHPs and consumers. The government set reference values for electricity generated by alternative sources at the start of the PROINFA programme (Table 7.5), and the idea is that the real market will converge to these prices as they grow. It is interesting to note from Table 7.5 that a significant subsidy was allocated for PVs and wind-based electricity, while SHPs and biomass-based generation got modest or even no subsidy as compared to natural gas or oil derivative electricity units.

Table 7.5 Electricity tariffs in 2004 set by PROINFA as a function of primary energy—Brazil. (Source: Prepared by the author based on Bercht et al. 2002; Carlos de Carvalho 2004)

The proposed tariffs set an upper limit for electricity commercialisation inside PROINFA, causing a significant lack of interest in the programme. The selection of the low tariffs was a real mistake, since the programme has attractive components (see Carlos de Carvalho 2004).

As can be seen from Table 7.6, the major share of expected potential electricity installed should be wind electricity (53 plants and 1423 MW) followed by SHP (63 plants and 1191 MW). By the middle of 2009, SHP was leading with 77.7 % of its promised capacity already operational and 20.9 % under construction, followed by biomass with 73.6 % in operation and 5.3 % under construction. Wind electricity was far behind.

Table 7.6 PROINFA status by August 2009. (Source: MME 2009)

8 Wind Energy

For several years the potential of wind energy in Brazil has been recognised (CBEE 1998). Figure 7.25 shows wind potential in Brazil. Nevertheless, the installed capacity at the end of 2009 was only 359 MW (EPE 2009). Motivated by a very favourable report issued by EPE in 2009 (EPE 2009) a special bidding for wind energy providers was carried out in December 2009. More than 10,000 MW was offered through 441 projects which qualified for the bidding. At the price of R$ 148/MWh, 1807 MW of new capacity was contracted (http://www.epe.gov.br/imprensa/PressReleases/20091214.1pdf). This potential will be distributed in 71 plants and contracted by the electric system for a period of 20 years. They were all required to be in operation by July 2012.

Fig. 7.25

Wind speed—Brazil. (Source: Feitosa 2005)

The major driver for the success in the wind contracts was the new regulation issued by the Electricity Board Authority. The regulation has several innovative aspects which were introduced to facilitate the participation of renewable energy sources in the electricity market.

Availability-based contracts are useful for thermal generation from biomass. For such sources, variable production costs are negligible and there is little uncertainty in the delivery of the amount contracted. However, they could be exposed to high financial risk during the non-harvest period since they would have to buy electricity at the spot market, which is quite unstable regarding the price. Considering that a contract based on availability requires the delivery of a certain amount of electricity accumulated during an agreed time period (EPE 2009), it is easier for the supplier to overproduce during more favourable feedstock conditions and under-produce when feedstocks are short.

For wind energy a contract based on availability would require an economic evaluation based on wind speed and frequency, which are not fully available. On the other hand, wind energy has similar characteristics with small hydroelectric plants, where electricity production is always possible but is linked to the volume of water available. Thus, another contract model was created to provide a better guarantee to the producer, similar to the existing one for small hydro. A model of annual accounting was created, with some margin for supply variability mitigating the natural uncertainty.

On top of that, renewable electricity plant construction is being driven by several transmission contracts that can help the supplier. Access to the electricity grid is guaranteed for any supplier and access can be obtained through three procedures: (1) access to the basic grid, (2) access to the distribution grid, and (3) access to the basic grid through transmission installation of exclusive interest of such electricity producers called shared connection .

With these creative policies, renewable energy electricity providers, including the ones using wind, are entering the market, and based on the results of the 2009 bidding there is good evidence that the forecast set by EPE and shown in Table 7.7 is underestimated.

Table 7.7 Evolution of electric installed capacity by primary energy source—Brazil 2008–2017 (MW)

Further, the price offered in this last bidding was quite low compared to the price of other new and renewable energy sources (biomass and small hydro), opening a bright future for wind power in Brazil.

9 Energy Efficiency

Energy efficiency is considered one of the largest clean energy sources. Examining the ratio GNP/toe consumed for Brazil (Fig. 7.4), the result is disappointing and one of the immediate conclusions is that apparently little effort has been dedicated to energy efficiency improvements.

Unlike most developing countries, Brazil has had, for a long time, government programmes to promote energy efficiency that are administered separately for electricity and fuels through two state-owned companies, Eletrobrás and Petrobrás.

• PROCEL , for electricity, was established in late 1985. The programme is managed by Eletrobrás, the federal holding company in the power sector.

• CONPET , for oil and gas, was established in 1991. The programme is managed by Petrobrás, the national oil and gas company.

The electricity efficiency (EE) programme is substantially larger than that for fuels—which is mostly focused on initiatives in the transport sector. Apart from PROCEL, two other programmes for electricity efficiency have been established since the late 1990s:

• The public benefit EE wire-charge on utility revenues⁸ for energy efficiency, which is managed by the utilities, with oversight by ANEEL, the regulator for the power sector.

• The RELUZ programme for subsidised financing of improved efficiency of public lighting, using the resources of Eletrobrás.

Government programmes have achieved significant EE gains in some areas, for example, with appliance labelling programmes and in public lighting. Figure 7.26 shows quantitative results due to PROCEL activities from 2004 to 2008. The results are impressive mainly when compared to the volume of the investments.

Fig. 7.26

Quantitative results due to PROCEL activities in the period 2004–2008. (Source: 2008 PROCEL results 2008)

Taking into consideration the accrued results of PROCEL initiatives in the period of 1986–2008, the overall energy savings obtained totalled 32.9 million MWh, representing:

• Sufficient energy to supply 18.9 million households for 1 year; or

• Enough electricity to supply approximately 27,000 new, small and medium-sized industries employing 2.7 million workers for 1 year; or

• Energy produced in 1 year by a hydroelectric power plant with a capacity of approximately 7890 MW.

However, little attention has been given to the market segment, that is, energy efficiency projects in existing industries and buildings. The consolidation of this ‘EE services sector’ requires overcoming historic barriers to implementing economically viable projects (Poole et al. 2006).

One relevant programme has been the EE wire-charge, which has created an important source of income for some energy service companies (ESCOs) . However, the operations are structured in such a way that they have so far done nothing to develop commercial financing of projects and little to consolidate a commercially sustainable EE services sector.

9.1 Shortage of Commercial Bank Credit for EE Projects

In Brazil, third party financing is mostly via debt. Capital markets are relatively small, though there has been some evolution of equity markets (both public and private).

The interest rates on credit for ‘active operations’ (i.e. excluding directed operations for rural and housing finance and BNDES operations) are very high by international standards (see below). Spreads are much higher for small and mid-size companies than larger companies.

The Brazilian development bank , BNDES (Banco Nacional de Desenvolvimento Econômico e Social), is the main vehicle of the federal government for financing development and is also the main source of financing for long-term credit in the Brazilian financial market. The BNDES makes loans either directly or indirectly through accredited commercial banks. Most loans for EE projects would fit in the latter category.

The interest rate on indirect loans is composed of the TJLP (long-term interest rate), the administrative spread of the BNDES, and the spread of the intermediary bank (which varies within a range, depending on the borrower). The interest rate in 2008 was 13 % or less, after some years when it was near 15 %. This is substantially lower than the interest rates for ‘active’ or ‘free’ operations of commercial banks. The BNDES has had a credit line specifically for EE projects for some years. However, it has almost never been used, due in large part to the guarantees required.

In general, guarantee requirements have been the single greatest barrier to ESCOs in accessing bank credit. A response to this problem, which has long been advocated, is the creation of a guarantee facility (Fundo de Aval) specifically for the credit risk of EE projects. A programme—called PROESCO—seeks to eliminate the requirement for collateral, though personal guarantees are still needed (see Poole et al. 2006).

9.2 Development of the Energy Efficiency Services Sector in Brazil

Energy service companies, or ESCOs, can make important contributions to transforming the market for EE products and services on a sustainable basis.

In Brazil, some firms started providing specialised energy rationalisation and efficiency services in the early 1980s, but a specific ESCO sector only emerged in the mid-1990s. This period saw the beginning of the definition of EE services as a sector and the public discussion of energy performance contracts (EPC). An EPC may be broadly defined as a contract between the ESCO and its client, involving an energy efficiency investment in the client’s facilities, the performance of which is somehow guaranteed by the ESCO, with financial consequences for the ESCO if the promised results are not achieved.

There have been periods of growth in the market for EE services, followed by periods of stagnation or even retraction. Over time the market has shown growth. It is estimated that the annual revenue of the sector for efficiency projects grew from roughly US$ 16 million in 1996 to about US$ 25–30 million on the eve of the energy crisis of 2001–2002 and reached a level of US$ 30–35 million in 2004. It must be emphasised that the estimates are quite rough. The growth is probably underestimated, since not all EE services companies are included—especially in the area of co-generation (Poole et al. 2006).

It is important to note the impact on energy efficiency as a consequence of the electricity shortage of 2001. As already discussed, electricity supply is mainly provided by hydro sources. As such, historically the electric system has added significant water storage reserves to face low rainfall periods. In the 1980s and 1990s, the stored energy was enough to cover three consecutive years of low rainfall, which was the worst case that had been reported since 1900. Even so, the system reliability was limited and operated for many years with a risk of shortage below 3 %. By the end of the 1990s there was unusual economic progress, not matched by investments in new storage capacity. With the occurrence of only two consecutive years with a rainfall index below average, the country suffered a very serious electricity shortage. Electricity had to be cut by 20 % in several end-use sectors (Poole et al. 2006).

As a consequence of this cap on consumption, many energy-efficient technologies penetrated households in Brazil, but probably the one with the largest impact was the use of compact fluorescent lamps. The major lesson is that behavioural changes triggered by the energy situation were permanently adopted by the population. Unfortunately, the lesson learnt by the residential sector did not have the same effect in other sectors of the economy, namely, commercial (Fig. 7.27) and industrial.

Fig. 7.27

Commercial electricity consumption—Brazil 1990–2017. (Source: EPE 2008)

10 Energy Future in Brazil

It is very interesting to compare the official energy development energy programme and the environmental political position of the country. The official energy plan, (EPE 2008), which is essentially a guidance programme since the energy sector is currently driven by public and private investments, (see, for example, Table 7.8 describing the evolution of the electricity market) concludes that more than US$ 430 billion (1.8 R$ = 1 US$) will be invested in the period of 2008–2017 to provide reliable energy supply to the population (see Table 7.9). Furthermore, the programme states that more than 90 % will be invested in traditional energy sources . And even stranger is the fact that oil exploration and production will be responsible for 69.9 % of this investment, much above the investments to supply electricity (23.6 %). Thus, official plans are prepared with the strong participation of well-established energy companies in the area of oil, gas and electricity while renewables are unfairly represented.

Table 7.8 Regulatory models used in Brazil in the past 30 years. (Source: http://www.ccee.org.br)

Thus, from the official planning document it is possible to see that most of the money is addressed to conventional energy sources, while on the other side, the plan presents an optimistic view of the penetration of new and renewable sources of energy. As an example, Fig. 7.28 has three scenarios for ethanol from sugarcane up to 2017. It is clear that doubling ethanol production will require much more investment, while the forecast of the official energy plan is around 6 billion (Table 7.9).

Fig. 7.28

a Ethanol production for different scenarios—2008–2017 b Sugarcane planted area—Brazil 2008–2017. (Source: EPE 2008)

Table 7.9 Total investments in the energy supply sector (2008–2017)—Brazil. (Source: EPE 2008)

Investments will also be needed in bioelectricity since at present, almost all new sugar mills include a high-pressure boiler to obtain revenue from the sales of electricity (Fig. 7.29).

Fig. 7.29

Potential bioelectricity from sugar cane—Brazil 2008–2020. (Source ÚNICA—Etanol e Bioeletricidade 2009)

Regarding biodiesel, the consumption forecast for the period of 2008–2017 is shown in Fig. 7.30, and is fully determined by the compulsory consumption since the supply potential is much higher and does not set any constraints on availability (Fig. 7.31), while the cost is higher than for conventional diesel fuel.

Fig. 7.30

Forecasted biodiesel consumption—Brazil 2008–2017. (Source: EPE 2008)

Fig. 7.31

Vegetable oil availability—Brazil 2008–2017. (Source: EPE 2008)

The forecasted demand is limited due to serious economic constraints, which is the reason to assume that no voluntary consumption will occur. Table 7.10 shows the expected prices for biodiesel feedstock. On top of these prices, it is necessary to account for conversion costs to biodiesel. If these costs are assumed to increase the feedstock price by 20 %, which is a conservative approach (IEA 2007), the price of biodiesel will be above US$ 2.50/l for sunflower, rapeseed, and soya before 2015, while for palm oil and national castor oil it will be US$ 2.20/l by 2017. Since the price of diesel is considered almost stable during this period, and even somewhat lower than in 2008, its cost for most of the years will be around US$ 1.00/l to the final consumer. Under this scenario only used oil and waste oil can be economically competitive, but their availabilities are quite modest (Fig. 7.31).

Table 7.10 Biodiesel feedstock price (US$/t). (Source: EPE 2008)

Brazil is a large exporter of soya as grain as well as for feed, and thus the displacement of this crop for fuel may impact the international market with an increase in food and feed prices. Assuming that biodiesel consumption by 2017 will be set by the compulsory index (5 % blend), 3,500 million l of biodiesel will be needed, while the potential supply will be 14,500 million l. Thus, fuel requirements may reduce the availability for food and feed by 24 % if production remains stable. Such reductions will induce further soya plantation or other vegetable oil feedstock. This issue is known as indirect land use change (ILUC) and is a source of extra GHG emission. The USEPA has already chosen an approach for its calculation and concluded that biodiesel based on soya will emit more GHGs than diesel (4 % more) (Fig. 7.17).

This issue, associated with the high prices of biodiesel from several feedstocks , is motivating a discussion with policymakers about the replacement of diesel by ethanol. There are several efforts in this direction (Cenbio 2009). Some are very simple, requiring the use of Otto engines to replace diesel ones. Others are more sophisticated like the use of 2-injection systems and preserving the diesel cycle, which is powered by diesel and ethanol in variable proportions. Another interesting option is the use of additivated ethanol in diesel engines (Cenbio 2009). Ethanol can have its cetane number increased by additives and then become a suitable fuel for the diesel cycle. Considering an ethanol price at US$ 550/m³ and the additive at SKR 24 per kg, it is possible to show that additivated ethanol has almost the same price as diesel.

Examining Fig. 7.32, which shows in-country potential ethanol demand, and comparing it with Fig. 7.28a, which shows production, the large interest of the ethanol sector in Brazil is very clear regarding its use as a diesel alternative.

Fig. 7.32

Total fuel demand for Otto-cycle light vehicles—2008–2017. (Source: EPE 2008)

With respect to hydroelectricity, forecast capacity installation in the period between 2009 and 2017 is expected to reach 41,127 MW, through the construction and operation of 70 new plants (EPE 2008).

Considering that the existing installed hydroelectric capacity in 2008 was near 81,000 MW, Fig. 7.33 shows the accumulated operational capacity of hydroelectricity up to 2017, which should reach near 110,000 MW. The average load factor for hydro plants in Brazil is around 55 %, which means an expected generation of 605 million MWh per year. In reality, the average demand for all the integrated electric systems should reach 86,000 MWh/h⁹ with a peak demand of 95,500 MWh/h¹⁰ by 2017 (EPE 2008). This means that hydro plants alone, with an installed capacity of 110,000 MW, should be able to supply all the electricity demand in years that have rainfall precipitation equal to and above the historical average index.

Fig. 7.33

Accumulated hydroelectric installed capacity—Brazil 2008–2017. (Source: EPE 2008)

Regarding the future of SHP and wind, both are very promising. As already discussed in Sect. 7, the installed capacity of SHP according to official plans is expected to increase to 7700 MW by 2017 (Fig. 7.24) from 2200 MW installed in 2007 (see Table 7.4). For wind, Fig. 7.34 shows that its share in non-hydro sources of electricity will increase from 1.6 to 3.8 % at least. From the discussion, as presented in Sect. 7.11, the reality may be greater than anticipated in official scenarios.

Fig. 7.34

Expected evolution of non-hydro sources for electricity generation—Brazil 2008 and 2017. (Source: EPE 2008)

It is possible to see from Fig. 7.34 that, at least based on the official planning body, the growth of renewable sources of electricity generation is modest, while fossil fuel will present the leading role. Fuel oil and coal will have a larger share in 2017 than in 2008, while biomass and wind will double their share. Such results have been criticised by some energy experts.

11 Conclusion

The Brazilian energy system can be considered environmentally friendly due to the significant share of renewable energy sources. For the next decades there are some concerns that renewables may lose market share if we trust official plans and the maintenance of unfair barriers created by environmental bodies on further medium and large hydroelectricity additions. Nevertheless, on one side the highly anticipated progress in the use of bioenergy , SHP and wind energy sources and, on the other side, future commitments of the country in controlling its GHG emissions may demonstrate that in the near future new and renewable energy sources should be able to guarantee that fossil fuel-based energy sources will not show the relative growth identified in the official planning programme (EPE 2008) extensively discussed in this chapter.

Also, it is clear that many renewable energy sources that started to be used for economic and financial reasons a long time ago are being seen nowadays not only as energy sources but as environmentally friendly due to their GHG emission mitigation capacity. The country’s population is aware of the full consequences of climate changes and about the capacity of the country in being an important supplier of renewable energy for the internal and external market. This last point is another important driver for the interest in such energy options since economic gains can be obtained.

Polices for further deployment of renewables are in place and all that is required are minor adjustments to them to overcome the few remaining barriers. Not only is the government involved in this effort but large and medium-size private investors are also working together, showing that governance is already in place in Brazil to promote new energy sources.

The major barrier, at this moment, is related to the large oil resources identified on the southeast coast of the country. Exploration of such oil will consume a significant share of the energy sector investment (Table 7.9) and will be a competitor for money allocation to other energy sources. Some experts understand that investments in renewables may be a more reliable alternative, considering the necessary future behaviour of major energy-demanding countries to address potential new commitments to mitigate climate change. As the country experiences economic progress, the cost of money decreases and investments with a long payback time are better considered. Thus, if oil wells have an expected lifetime of less than two decades, this point nowadays should be taken into account as it negatively impacts the oil industry.